No TDS Deduction u/s 194 J of Income Tax Act, when consultancy charges excluding Service Tax does not Exceed Rs. 30,000: ITAT

The two member bench of the Income Tax Appellate Tribunal ( ITAT ), Delhi, observed that no Tax Deducted at Source ( TDS ) deduction under Section 194J of the Income Tax Act, 1961, when consultancy charges excluding service tax does not exceed Rs. 30.000.

The assessee has made payment of consultancy charges to M/s. Samssara Capital Technology of Rs. 33,616/- during the year and claimed the same as deduction

The AO observed that since no deduction of tax at source was made on such payment, the assessee would be invited with the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, this action was confirmed by the CIT (A).

The Section 194J under the income tax 1961, covered TDS on professional fees or technical fees services. This section covers doctors, accountants, engineers, interior designers, architects, and also people associated with the advertising field. In this guide, we will explain to you all the provisions related to Section 194j of the Income Tax Act, 1961.

According to Section 194J of Income Tax Act, 1961, any person ( other than an individual or a Hindu Undivided Family ) making payment to a resident for professional or technical services was required to deduct TDS at the rate of 10% or 2% as applicable of the amount paid or credited to the recipient. Also, if the payee does not provide PAN to the deductor, TDS will be deducted at the rate of 20%.

Individuals or a Hindu undivided family whose total sales or turnover from the business or profession exceed the threshold limits specified under Section 44AB of the Income Tax Act, 1961, during the immediately preceding financial year in which fees for professional services or technical services are credited or paid shall be liable to deduct income-tax under this section.

As per this Section, any person ( other than an individual or HUF who are not covered under Section 44AB of the Income Tax Act, 1961, in the preceding FY ) who pays fees to residents for professional or technical services, will be required to deduct tax at source under Section 194J of Income Tax Act, 1961.

The bench observed that the assessee would be liable to deduct tax at source only if the payment exceeds Rs. 30,000/- in terms of 194J of the Income Tax Act, 1961, and that for the purpose of  reckoning such limit of Rs. 30,000/-, the service tax portion should be excluded. This fact has been categorically made clear by CBDT itself in its circular. In the instant case, the consultancy charges excluding service tax was exactly Rs. 30,000/- and did not exceed Rs. 30,000/-.

Hence, as per the provisions of Section 194J of the Income Tax Act, 1961, read with CBDT circular, the tribunal comprising Anubhav Sharma ( Judicial member ) M. Balaganesh ( Accountant member ) held that the assessee was  not obligated to deduct tax at source. Hence, no disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, could not be made. Accordingly In the result, the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates